The Battle for Senior Housing Occupancy is About to Begin

During our recent virtual Sales Summit, Oakmont Senior Living COO Matt Stevenson said something that caught my attention: “When we look in most markets, we’re hovering around 10% to 11% penetration … to fully recover as an industry, we’ve got to get that to 15% levels.”

His point was that, with the vaccine rollout enabling more move-ins, the entire industry is entering a lease-up period at the same time; the competitive environment is already becoming cutthroat, and results are going to be disappointing if providers across the country all are competing to win over the same small slice of the market.

While Stevenson’s argument makes sense to me, the industry historically has struggled to increase penetration rates, and it seems nearly impossible that the sector could quickly and dramatically increase penetration in the current environment.

But increasing penetration should be a shared goal across the industry, to not only to recover as fast as possible but strengthen senior living in the aftermath of Covid-19. Providers can and should be taking steps toward this goal, in an Operation Warp Speed for the sector, as Claiborne Senior Living VP of Marketing Dan Hutson described it to me.

‘It’s already gotten rough’

Some industry leaders hope and believe that pent-up demand will be strong enough to drive occupancy as a Covid-19 recovery takes hold.

“We believe that that pent-up demand is already showing up at our doorstep,” Belmont Village CEO Patricia Will said during a recent SHN+ TALK. “To a degree, it will defray the competition in the marketplace because you’ve got almost a year’s worth of people that have sat on the sidelines. We’re seeing it already, and that will be part of the equation.”

Will believes that a return to pre-pandemic occupancy will occur sometime in 2022 for Belmont Village. Another industry leader who is bullish on pent-up demand is Aegis Living CEO Dwayne Clark; Aegis is seeing “unprecedented” pre-leasing for communities in development, and he anticipates a potential “hockey stick” recovery as move-ins accelerate later in 2021.

But others have a less optimistic outlook. Recent analyst reports from Scotiabank and BMO Capital Markets predict that occupancy will not return to pre-pandemic levels until 2023 at the earliest and possibly not until 2025.

Oakmont’s Stevenson also is doubtful about the extent of needs-based demand. Oakmont has looked at the data “multiple times” and concluded that needs-based inquiries did not change much in 2020 compared with 2019, except for a dramatic dip in March and April. With this data in mind, he believes that increasing the pool of potential residents is imperative.

There are several reasons why needs-based demand might be underwhelming, even though pandemic-related restrictions on move-ins theoretically should have created a large pool of older adults in need of senior living.

For one, the pandemic showed that consumers still confuse assisted living with nursing homes, and media coverage of Covid-19 exacerbated this problem.

“Covid slammed skilled nursing hard, and because we haven’t educated the consumer very well, they don’t distinguish between one product and the next,” Hutson told me.

So, some older adults and their families now take a dim view of senior living and will be motivated to find alternatives. And alternatives exist. As senior living communities saw inquiries and leads evaporate during the pandemic, home care providers experienced a spike.

Going forward, large players in the home health and home care sector — such as Amedisys (Nasdaq: AMED) — are looking to build on this surging demand by taking needs-based market share directly from senior living communities.

“We are innovating to meet this demand,” Amedisys CEO Paul Kusserow said last fall. “We’re working to be able to increase our capacity to care for more traditional patients, as well as moving up the acuity scale and focusing on new, sicker patients that had no other options but institutions [in the past].”

With this as the backdrop, there are already signs — such as deep concessions being offered in some markets — that prospects are not rushing back to communities, and providers have a bruising battle to wage in order to rebuild census.

“It’s already gotten rough,” Eclipse Senior Living Kai Hsiao told me.

Increase marketing spend, strengthen tactics

The most basic step to take to drive penetration rates is to spend more money on marketing, to reach more potential consumers, Stevenson argued at the SHN Sales Summit.

“We’d be silly to think that we’re going to recover occupancy 1000, 1200, 1300 basis points with marketing budget dollars that were similar to what we had in years past,” he said.

Oakmont is increasing its marketing budget, and is not alone. In response to our 2021 Outlook Survey, about 600 SHN subscribers said that sales/marketing was the area where spending would increase the most this year, due to the pandemic.

But simply throwing money at a problem does not always solve it; how those marketing dollars are spent will be crucial.

“It’s time for senior living marketing to fully embrace modern marketing practices you’ve seen in other industries,” Claiborne’s Hutson recently told me. “The urgency of the situation should compel us to find new, more contemporary ways of engaging with customers and helping them through their journey.”

A lot of these modern practices are digital, including having the systems in place gather more information about a market, do better customer profiling, and execute more targeted and personalized campaigns. Over the course of our Sales Summit, we heard that providers are spending more on digital marketing and getting better at it — and that this shift is long overdue.

It does seem plausible to me that providers could upgrade their marketing prowess in the near-term, to educate and entice consumers who in the past might not have considered senior living. But I’m not sure that the result will be a meaningful increase in the penetration rate.

I tend to agree with Hsiao, who told me that these sales and marketing updates will have incremental benefits, “but to drive 1 or 2 percentage points of penetration, I’m not sure it adds up to that.”

Potential in partnerships

I also think there is the potential to increase penetration rates by presenting senior living as an option to more older adults through the health care system, driving up the pool of potential needs-based customers.

It’s an idea that Brookdale Senior Living CEO Cindy Baier put forward in 2019: “By partnering with payers, hospital systems, with other members of the health care ecosystem, we think we can actually improve penetration [rates].”

Brookdale has been quietly piloting programs with health systems and has not revealed much about the initiatives. However, it stands to reason that health systems — especially those that double as payers, through the Medicare Advantage program — have a lot to gain if they refer their patient populations to senior living communities that can keep them healthier, longer.

Putting in place health system partnerships has historically been a long slog for senior living companies, but that ice was broken in recent years, with ProMedica tying up with ManorCare and Sanford Health merging with the Evangelical Lutheran Good Samaritan Society.

Some senior living providers began to work more closely with their local health systems last year, and if they can extend these relationships and drive referrals as the pandemic wanes, this will give them an edge in the immediate battle for occupancy and could help move the needle on penetration rates over the next few years. I’ve also written frequently in recent weeks about emerging opportunities to work with MA-driven primary care groups such as Cano Health.

And it’s possible that we’ll start to see penetration increase for senior living providers that have started their own MA plans in recent years. Even for providers that haven’t gotten in the MA game, connecting with local payer organizations can bear fruit, said Ben Zaniello, chief medical officer at Collective Medical, which was recently acquired by PointClickCare.

“There will be a marketing opportunity to drive occupancy, because health plans are ROI driven, and if you can show them that you save them money, they’ll drive their membership toward you,” he said this week on a Senior Living Innovation Forum webinar.

New and better product

While better marketing and new partnerships might move penetration rates in a positive direction, it seems obvious to me that what is really needed — and what is impossible to rapidly create on a wide scale — is new and better senior living products.

“Opportunity for growth is unlimited, but we keep building the same damn product over and over again with some minor iterations,” Hutson told me.

He points to alternatives such as co-living and new approaches to active adult, which he believes can serve as inspiration for more innovative and diverse products that will appeal more to the baby boomer generation.

I think it’s possible that Will and Clark are bullish on a quick recovery because they have tried to push the envelope in their developments — see Belmont Village’s urban projects and unique partnerships and Aegis’ out-of-the-box designs and niche market plays — and now their portfolios are attracting consumers more effectively than more cookie-cutter options.

Eclipse’s Hsiao also argues that more creative product is badly needed, and he emphasized that serving the vast middle market also will be key to boosting penetration rates. Juniper Communities CEO Lynne Katzmann also believes that the pandemic will inspire new models.

The issue is that conceiving of and building these models takes time, and the massive lease-up effort is getting underway today and is already getting ugly. But even if providers can’t devise and build innovative communities in the next year, they can make substantial changes to their models on a dime and can move more quickly than they have been to innovate. We know this because providers did it in 2020 — Oakmont and Brookdale being two examples.

Although organizations are dealing with Covid fatigue and don’t want to keep pivoting, they may need to draw on the same grit, resourcefulness and creativity they displayed last year, only this time to determine what consumers want and need and find ways to deliver. Any provider that is not doing so needs to find the wherewithal, in Hutson’s view.

“They should be launching their own Operation Warp Speed to reach a market that has been rejecting our product for years,” he said.